IPO Market Another Sign of Change in Japan: Macquarie

Suntory Holdings Ltd is planning an initial public offering of its food and non-alcoholic beverage unit

Change could be afoot in Japan as voters elected overwhelmingly a prime minister who is pledging stark action to lift the country out of its economic malaise.

Macquarie is seeing another reason for hope in Japan: The country’s initial public offering market, which is seeing strong signs of revival.

According to Macquarie, the fiscal year ending March 2013 is set to be the first year in over a decade when more money was raised from IPOs than from secondary issues –or share sales in already-listed companies– in Japan. The last time IPOs outnumbered secondary offerings in terms of funds raised was in 1999.

So far in 2012 there have been 37 IPOs in Japan, according to Macquarie, with 14 planned for this month, compared with 38 in 2011.

“This is a glimmer of change,” writes Macquarie, although it notes that the market still has some way to go before reaching a “more normal” level of between 150 and 180 IPOs a year. The period between 2000 and 2007 all saw at least 100 IPOs a year, including 203 in 2000 and 175 in 2004. However, the number plunged from 121 in 2007 to 49 in 2008 and 19 in 2009.

One major IPO in the works is Suntory Holdings Ltd.’s multi-billion-dollar listing of its beverage business, slated for early summer next year, according to people with knowledge of the deal.

Macquarie thinks that a recovery in the IPO market could spur greater participation by Japan’s retail investors, which has been lackluster this year. Japanese households currently hold “very conservative” portfolios of financial assets, but could start using 1% to 2% of their portfolios to take positions in IPOs when issues start to surge, it says.

In Japan, typically 60% to 80% of offerings are allocated to retail investors, compared to 10% to 20% in the U.S., Europe and other Asian markets.

In a bull market, individuals account for 35% to 45% of brokerage turnover, according to Macquarie, but the fiscal year ending March 2012 saw the lowest level of individual activity since fiscal year 2005, at 21.6%.

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